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On Thursday, the US dollar index (#USDX) plummeted, and it seems that it may close the week in negative territory, returning to the previous month's closing levels.
At the time of writing, the DXY futures are trading near 102.94, 212 points below last week's swing high of 105.06 last seen in January 2003.
Market participants are probably still under the impression of Jerome Powell's statements last Tuesday at the Wall Street Journal's Future of Everything Festival. While Powell reiterated the Fed leadership's intentions to fight rising inflation in the US, which has reached the highest level in 40 years, market participants seemed to be expecting a more hawkish statement from him.
According to Powell, if economic indicators are in line with expectations, it would be appropriate to raise interest rates by 50 basis points at the next two meetings.However, these interest rate hikes were already factored into prices, Powell added.
According to the report of the US Bureau of Labor Statistics, released last week, the consumer price index (CPI) in April rose by 0.3% and by 8.3% yearly, exceeding the forecast of 0.2% and 8.1% respectively. The Core CPI increased by 0.6% and by 6.2% yearly, which was also above the forecast, though lower than in March. The data suggest that the Fed's more aggressive policy has been effective. Following the May meeting, Fed policymakers decided to raise interest rates by 0.50% and announced the start of a $9 trillion reduction in the balance sheet in June. Nevertheless, inflation is still growing, but at a slower pace.
Currently, market participants are assessing how effective the measures taken by the Fed will be. If inflation continues to rise, and there are a number of fundamental reasons for this, such as rising energy and food prices, then the US dollar will be under more significant pressure.
Today, futures on the major US stock indices rise. Thus, the S&P 500 broad market index futures are currently trading near 3942.0, 82 points above yesterday's low of 3860.0.
It looks more like a correction after the strong fall the day before and profit-taking in short positions. In addition, it also contributes to the weakening of the US dollar.The economic calendar has no important US statistics until the middle of next week. We are likely to see a continued weakening of the US dollar. Volatility in its quotes may increase again on Wednesday, when fresh data on orders for durable goods and capital goods, which involve large investments, and minutes from the May meeting of the Fed, in which the Fed leaders decided to raise rates by 0.50%, the largest increase since 2000, will be published. Fed policymakers also announced that a three-month balance sheet reduction program would begin on June 1. The balance reached $9 trillion. Meanwhile, the balance sheet reduction is a part of the monetary policy normalization program that the Fed is implementing to slow down inflation.
If the minutes contain new and unexpected information about the Fed's monetary policy outlook, the volatility in USD quotes, as we noted above, may increase.More hawkish minutes would help the US dollar strengthen. Conversely, softer rhetoric from Fed policymakers would weaken the currency.
Today, during the US trading session, the publication of important data in the economic calendar, including the US, is not planned. Probably, the US dollar may be trading sideways till the end of today's trading day with a tendency to decrease, especially if the US trading session opens with growth on the US stock exchanges.
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